Forex Investment and Currency Trading

The massive spot market moves in October have given a further boost to implied vol in the FX options market. Natural sellers of volatility have largely been absent (or, indeed, have been unwinding positions) whilst trading spreads have widened sharply. Amidst the powerful risk aversion and de-leveraging dynamic, risk reversals have stretched out, favouring USD-EM calls over puts. In the majors, implied vols for the “risk appetite” crosses such as AUD-JPY reached exceptional levels (90% implied in the 1-week) whilst risk reversals have favoured USD-JPY puts. In general, the implied vol surface has become more inverted amidst the market turmoil, [...]

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Singapore’s economy remains highly dependent on global trade – and thus highly vulnerable to a downturn in external demand. Indeed, exports as a percentage of overall GDP are around 185%. With the global economy slowing sharply, the Monetary Authority of Singapore (MAS) eased monetary policy on 10 October, moving to a neutral FX policy stance from a tight stance. Over the last weeks the Singapore dollar (SGD) Nominal Effective Exchange Rate (NEER) has moved back to the strong end of the policy band. Over the coming months it’s expected the SGD NEER to move towards the floor of the policy [...]

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Singapore growth will slow further on weak external demand
USD-SGD will move higher on slowing growth expectations, global deleveraging
Exporters should maintain low hedge ratios on short-term USD receivables

Singapore’s economy remains highly dependent on global trade – and thus highly vulnerable to a downturn in external demand. Indeed, exports as a percentage of overall GDP are around 200%. With the global economy slowing sharply, the Monetary Authority of Singapore (MAS) eased monetary policy on 10 October, moving to a neutral FX policy stance from a tight stance. In the last few months, the SGD has moved towards the floor of its Nominal [...]

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On the back of extreme risk aversion and continued tension in global money markets, USD/JPY has recently traded to a low of 91, a level not seen in 13 years. 
Deleveraging and continued unwinding of the carry trade remain major driving forces in FX, keeping USDJPY close to historic lows.
However, aggressive global government intervention will eventually bring some degree of normalcy to money markets and a slowing economy.
Despite the passing of the Emergency Economic Stabilization Act and a coordinated European government rescue plan, the markets are still weary of risk. USDJPY, a risk Proxy, continues to trade at attractive levels for [...]

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